How Hotels Can Prevent & Reduce Fraud

Stephen Alemar
November 30, 2022

Since there have been credit cards, there has been credit card fraud. And historically, the hospitality industry has been one of the most heavily affected by this unfortunate reality. In fact, it’s been estimated that of all instances of credit card fraud, 55% occur within the hospitality industry.

One contributing factor to this disproportionate amount of credit card fraud attempts and instances may be attributed to the industry’s seeming reluctance to move away from paper credit card authorization forms. 

Paper credit card authorization forms are no longer considered PCI compliant and are frequent targets of bad actors looking to commit fraud. 

In this blog post, we’ll outline exactly what hotel credit card fraud is and how you can use modern technology solutions to reduce it at your property. 

What Kind of Fraud Affects Hotels? 

While there are a number of different types of credit card fraud commonly committed by scammers, two are known to plague the hotel industry above all others: card-not-present fraud and friendly fraud. 

Let’s now take a quick look at how each of these two types of fraud work.

Card-Not-Present Fraud 

When a bad actor gets a hold of someone’s credit card and then uses it to make purchases online or over the phone, this is considered card-not-present fraud. Traditionally, this is one of the hardest types of fraud to prevent because the merchant does not have a physical credit card or ID to examine. 

Friendly Fraud

Even more so than card-not-present fraud, friendly fraud is very common across all property types around the globe.  

This type of fraud occurs when a person requests a chargeback after they have already authorized the transaction. Why this happens is always hard to tell. It may be due to an honest mistake or a misunderstanding. For example, frequent travelers may forget a hotel stay or see a charge that they do not recognize and make an honest mistake by initiating a chargeback

However, friendly fraud may also be entirely intentional and a conscious attempt by a scammer to avoid paying for their hotel stay. 

Though different in nature, both of these types of fraud can result in the same problems for hotels — lost revenue and paperwork nightmares. 

The good news is there are proactive things hoteliers can do to prevent fraud and chargebacks at their properties. Let’s now look at what those are. 

How Modern Technology Can Help Prevent Fraud at Hotels 

Unfortunately many hotels today still rely on outdated practices and technologies to process credit card authorizations, such as paper and PDF authorization forms. However, getting up to speed doesn’t have to be difficult. 

For example, Canary Technologies offers a variety of turnkey solutions that can be deployed at hotels quickly and easily that substantially lessen the chance of being hit by fraud. The platform is trusted by over 20,000 hoteliers worldwide and endorsed by some of the biggest hotel brands in the world. Here are a few of its flagship products and features that hotel operators around the globe have to come to rely on. 

Canary Check-In With Advanced Fraud Detection 

As mentioned above, card-not-present fraud has historically been difficult to detect and prevent, as merchants are not able to examine the purchaser’s physical card and ID. Canary deals with this issue by enabling guests to complete the check-in process online before they arrive at the hotel. This check-in process involves running a series of advanced checks that are designed to prevent card-not-present fraud, which can include requiring a guest to upload a photo ID. 

Here is a quick overview of how Canary fraud detection works. 

  • Canary deploys an adaptive machine-learning system to evaluate the risk level of each card payment in real-time. This system examines hundreds of signals taken from each payment and taps into a credit card data network to predict whether a payment is likely to be fraudulent. Canary will then automatically decline higher risk cards.
  • Canary also runs an AVS (Address Verification Service) check, which hoteliers can use to decide whether or not to accept or reject the card. 
  • Optionally, hoteliers can require guests to submit an ID along with the card information. From there, Canary can provide Instant Identity verification to further mitigate fraud.

How effective is Canary Check-In? According to data from one upscale mid-market hotel brand, the average cost of chargebacks per guest without Canary was $16.85. After Canary Check-In was implemented, that figure dropped to $3.99 (a 75% reduction). 

PCI Compliant Canary Digital Authorizations 

Since paper and PDF credit card authorization forms are no longer considered PCI compliant, but they are considered perfect entry points for scammers looking to commit fraud, it’s a good idea for hoteliers to replace these dinosaurs with digital solutions. 

Canary’s award-winning Digital Credit Card Authorization tool enables hoteliers to collect all relevant customer data (e.g. name, billing address, card details) via a secure online form. 

Canary then processes and records the authorization, in addition to client details, in a PCI-compliant manner. This way of handling sensitive guest data is both easier and safer for all parties involved. And if you do receive a chargeback, you have all the needed to maximize your chances of winning the case. 

How To Prevent Fraud at Hotels Without the Aid of Technology

Though more difficult and less reliable than using digital solutions, there are still things you can do in the analog world to help prevent fraud. For example, there is still the old fashioned way of checking a guest’s actual credit card against a physical ID when they arrive at the property. You can also take steps such as ensuring the name of your business that appears on a credit card or bank statement is something a guest would recognize as your hotel. And lastly, it’s always a good idea to make sure hotel policies, services and associated charges are all easy for a guest to find throughout the entire guest cycle to minimize confusion and the chances of accidental friendly fraud. 

Conclusion 

Though there is no indication that scammers looking to commit fraud will stop targeting the hotel industry anytime soon, that doesn’t mean hoteliers are defenseless. New technology tools can help combat the most common types of fraud found at hotels, and these solutions are getting better all the time. Combined with other commonsense, tried and true methods of reducing fraud, such as a keen eye at the front desk and clear explanations of policies and service charges, hoteliers can successfully reduce fraud and chargebacks at their properties by 90% or more. 

Interested in learning how Canary can help your hotel combat chargebacks and fraud? Book your demo today!

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